The economics of climate change: challenge and opportunity
The Stern Review on the Economics of Climate Change, released Oct. 30, 2006, warned that failing to act on global climate change could risk future economic damages equivalent to a reduction of up to 20 percent in global gross domestic product (GDP). To focus on the US economy, with a GDP of $12.3 trillion per year, climate change-induced loss could reach almost $2.5 trillion per year.
We often hear about what a disproportionate amount of the world’s resources the US consumes and our equally disproportionate contribution to global climate change. But there is an upside to our superabundant economy – we also contribute one third of the world’s GDP. If we were to accept the Stern Review’s recommendation and invest 1 percent of that in solving our global climate change problems, we’d be spending $24.6 billion per year.
That sounds like a huge investment, but if the report is right and failing to act could lead to losses of almost $2.5 trillion per year, it starts to look like a pretty wise one. When we add the environmental and human health benefits it looks even better.
What effect would an annual investment of $25 billion to fight climate change have on our economy? Where would the money go? Green technology was the darling of the 2006 US economy, exceeding 2005 investment by 78% as venture capitalists put $2.9 billion into technologies related to energy generation, storage, transportation, recycling and waste.
That upward trend reverses a long slide in green tech funding. Federal spending on energy technologies, for example, fell from an inflation-adjusted peak of $7.7 billion in 1979 to just $3 billion in the 2007 budget. Military spending, in contrast, went up 260% to $75 billion a year over that time period.
Now the pendulum is swinging back toward increased federal spending. George W. Bush in 2007 became the first US president to address global climate change in a state of the union address, calling on the country to diversify its energy supply, change the way America generates electric power, make greater use of solar and wind energy, press on with battery research for plug-in and hybrid vehicles, expand the use of clean diesel vehicles and biodiesel fuel, and continue investing in new methods of producing ethanol.
Specific targets include reducing gasoline usage in the US by 20 percent in the next 10 years, in part by setting a mandatory fuels standard requiring 35 billion gallons of renewable and alternative fuels in 2017.
Other lawmakers have been even more aggressive. A federal renewable portfolio standard bill, HR 969, introduced to the US Senate in February 2007 by Rep. Mark Udall (D-Colo.), would mandate renewable energy. The bill would require utilities to generate 20 percent of their electricity from renewable resources such as solar, wind, geothermal and crops by 2020.
In upcoming posts I’ll look at the opportunities that facing up to global climate change have to offer, and how nanotechnology and biotechnology are moving to meet them.